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Democratic accountability in open economies

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We analyze democratic accountability in open economies based on different hypotheses about political evaluations and government responsiveness. Specifically, we assess whether citizens primarily rely on government policies or if they focus on economic outcomes resulting from these policies to evaluate governments. Our empirical analysis relies on Bayesian structural vector autoregression models for the British economy, aggregate monthly measures of public opinion, and economic evaluations from 1984 to 2006. We find that voters continuously monitor and strongly respond contemporaneously to changes in monetary and fiscal policies, but less to changes in macroeconomic outcomes. Voters also respond to policies differently when institutions change. When the Bank of England became politically independent, citizens shifted their attention toward fiscal policy, and the role of monetary policy in their evaluations decreased significantly. Finally, politicians respond to voting behavior by adjusting their policies in a sensible way. When vote intentions and approval decrease, the government reacts to the public by adjusting fiscal policy and, before the Bank of England became independent, also monetary policy.